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KPI's For Retail

KPI's For Retail

  Retail   1 Comments   September 05, 2018   Holly Bernard

KPI's for retail

Key Performance Indicator

A KPI is a metric used to measure performance. There is no set of KPI's that every retail store must use, as every store is different so they need different ones depending on what goals they have. So you need to know what outcome you want to achieve in your business, it could be that you want to manage your inventory better or you want to enhance your customer experience. Once you have decided what your goal is going to be you can look at the KPI's you need to put in place in order to achieve this, each KPI must have a specific purpose and be measureable quantitatively or qualitatively.

Even though there will be different KPI's specific to your goal there are some general ones that every business should be putting into place in order to improve your performance, which is something every business should be striving towards.

Sales per Square Foot

In this KPI the average sale you generate from each square foot of area in your store is measured. By measuring this you'll be able to see the effectiveness of your store layout and the performance of your sales. This is also useful if you have multiple stores as you can identify which layouts are more effective so you can improve the ones that maybe aren't performing as well.

Stock Turnover Rate

For this KPI the number of times the average inventory of a product is sold in a year is measured. This will then indicate to you how quickly you are selling your inventory, for example if throughout the year you see that your inventory turnover ratio is going down it means that you have excess inventory. You can then get rid of this and put things in place to make sure you don't end up with loads of excess again.

Sell Through Rate

Sell through rate is the ratio of the number of units sold in a period and the beginning on-hand inventory for that period. By calculating this percentage, you'll be able to see how much inventory you are able to sell in that specific period of time and is really useful for seasonal merchandise. For example if you get Christmas stock in then you'll want to make sure you sell all of it before the season ends.

Average Customer Spend

In this KPI you are calculating the average spend of customers during each one of their purchases. This can help you when grouping your customers depending on how much they spend and how you're going to sell and market to each group. You can also compare a customers average spend with their average number of products purchased for each transaction. This will vary for each retail store because for example, an electronics store will have more expensive items so they'll generally have a higher average spend per transaction and a lower unit purchased per transaction. Compare this to a clothes store who will have a lower average spend but a higher unit per transaction.

Customer Insights

In order to be successful and grow your business you need to develop an understanding of how and when to engage with customers, so you can build up loyalty with them and hopefully then they'll use your business long term. Instead of knowing how many products you've sold you need to know things like who bought them. If you can gather as much data on your customers as possible and then analyze it, you'll be able to make better decisions on what products are preferred by customers and what services need improving or implementing etc.

Wages to Revenue

This involves calculating the amount of revenue created against your stores wage expenditure. This means that you can track what transactions and how many of them each of your sales teams is doing. You can therefore then see which member of staff is doing the best and reaching or even exceeding their targets or which staff are maybe not doing as well as they should be. If your ratio indicates that your store sees more revenue than wage expenditure then you're on the right track, but if not then you need to look at what things can be put in place in order to improve this.

Back Order Rate

Back order rate is the number of orders that can't be fulfilled when the customer places the order for it divided by the total number of orders. If you have a low number of back orders then it is great however don't be worried if you do, in fact having a high amount of back orders isn't necessarily a bad thing. This could mean that you had a rise in sales, which is definitely not a bad thing and means you can be more prepared for the future and have more products or stock. However, it could also mean that there is inefficiency in the production process and even though this isn't a particularly good thing if you know that this is happening then you can fix it.

Return Rate

An important KPI is to measure how many products customers are returning. Although knowing this is useful you also need to know why the product/s are being returned as if you can see what category the products are and why they are being returned. You can make changes to that category or just to the product itself so that the number of returns decreases.

Customer Retention

Do you know how good your business is at keeping customers in the long run?

By calculating, what your customer retention rate is you'll be able to see the number of customers that buy from your business on a regular basis. If you can keep customers coming back it will cost you far less than having to try and get new ones. Although at first you may have to put a lot of effort into customer retention and building a long term brand loyalty it will be worth it for how much revenue that you will get coming in from existing customers. Every business is different so you need to find the average value for the sector you're in and work towards reaching that. Because there is so much competition and variety in the retail sector it is difficult to get customers to continually use your business, this means customer acquisition costs are consequently too high to make a profit on the first order but you then get them to come back again and again it will provide great benefits to your business.

Point of sale

This KPI measures where transactions are completed and compare each one over a specific period. For example, could measure the amount of sales completed in a month in store and online on your website and compare them or if you have multiple stores you can measure which store has the most transactions coming from it. This means you'll be able to see exactly where it is your customers are purchasing from you so you can invest more time and resources as this area obviously has the most impact on your business.

Order status

This is an important KPI to measure as it is one that serves both your customers and your business. By informing customers on the status of their order it increases their satisfaction but also means its easy for you to notify them of any issues, so they know you are trying to resolve them. Because you have to keep your customers informed in real time your supply chain will be evaluated efficiently at the same time. By doing this you are decreasing the amount of back orders or restocking and increasing the number of new orders which will in turn grow the business. By tracking exactly what is happening with an order it won't just be useful for the customer but for you as well because you'll be able to monitor the supply chain and see if anything happens. For example if an order is being processed slowly you can fix the problem quicker than if you had to look things up or maybe not even find out them in the first place.

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Lucas White

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